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Ignoring the Human Element Can Lead to Unforeseen Problems During Integration

During due diligence, corporate M&A teams often focus on technology, systems and finances, not culture and talent.

After all, enhancing the bottom line is the primary goal. Your workforce is the key to reaching that goal.

But they have other concerns. They care about the changes in the organization, yes. AND they care that their health insurance transitions without a glitch. They care that their 401K is being managed by a different provider with different funds. They care that their PTO agreement is still the same or better. They care that their ability to be promoted is still viable. They wonder if this “new-co” is still a long-term opportunity for them personally.

Unfortunately, many M&A teams pay only cursory attention to assessing culture and talent. But these soft issues are critical for any merger and acquisition deal to become a true success.

Overlooking this step can lead to significant cultural clashes and major change management issues.

The results? Endless problems with client and employee experiences. And likely endless problems with profitability, as well.

CVs Are Easy. Personalities and Culture … Much More Difficult

Examining talent is difficult but doable.

The easy way is functional. Your team assesses talent based on capabilities, putting personality and culture aside. You’ll need to determine what capabilities, experience and knowledge your organization will gain through this M&A.

Much of this, sadly, will have to be done via paper. You can evaluate CVs of top executives and key players. You can examine their LinkedIn and other social media profiles.

The hard way involves evaluating personalities and company culture. After all, extensive one-on-one conversations are the best way to evaluate people. And depending on the size of the companies involved, this can be difficult to impossible.

Remember, most people don’t even know an M&A deal is imminent, particularly in larger companies. That makes it impossible to develop the relationships necessary to understand corporate culture.

In most cases, your team is going to have to rely on conversations with the people sitting across the table from you. The ones doing the dealmaking. The people who know the people.

Examining Who Is Right in Front of You

Basically, you’ll need to infer an organization’s talent based on the type of leaders you think their executive team would pick and how they conduct themselves.

You can’t administer an 18-point personality test, but you can observe their personalities. Are they direct? Are they kind? How do they react to disagreements and conflict?

All deals are stressful, so observing how they deal with conflict can be key. Most people are calm when things are going well. (And if they are not, that’s a red flag.)

The key is to function as a team and get through to the other side when the proverbial deal hits the fan. How the executive team deals with conflict can give you a glimpse of how the rank and file will act.

Even in the best-case scenario and the best cultural fit, there will always be some disagreement, market shift or unforeseen issues.

Strategies for Cultural Assessments in High-Stakes M&A Meetings

Face-to-face meetings can be rife with distractions, such as financial negotiations and legal discussions. They cannot be ignored. But here are a few strategies I use to “sneak in” my cultural assessments:

  • Observe communication styles: Are the executives in front of you open and transparent, or guarded and secretive?
  • Ask about company values: How executives explain their core values can help you understand their mission and culture. Do their values seem unique or boilerplate-generated by a marketing team?
  • Discuss decision-making processes: Do decisions stem from one person at the top? Or do they prefer a culture of collaboration and consensus?
  • Understand their KPIs: Ask about what they consider success and how they measure it. This can give you insights into the company’s performance culture.
  • Inquire about employee engagement: Ask about employee turnover rates, satisfaction surveys and other indicators. Big turnover could indicate big problems. And if they are not interested in what their employees think, that could be another cultural red flag.
  • Cultural queries: How does the work get done? How do they set priorities? How do they support – or don’t support – change? Understand what element you want to protect and nurture – and what element you should jettison.

Start this assessment from meeting one, not a few weeks before the deal closes.

When Size Can Help You Discern Corporate Vibes

If your M&A partner is a sizable organization, they likely will have a major online presence.

You can examine their website, their LinkedIn pages, all their social media posts. This will at least give you some type of vibe about their corporate culture.

You can also review sites like Glassdoor.com that aggregate reviews from former employees. These reviews provide insights into company culture, work environment, strengths and weaknesses. It’s important to consider whether employees believe their leaders’ values align with daily operations, or if these values are just words. Does the management and executive team exhibit true leadership?

Remember, however, that some of that feedback could come from disgruntled employees.

A physical walkthrough of a company building or buildings can reveal a wealth of information. This is easier if you are dealing with a larger organization that has retail or customer-facing locations. In such cases, you can do this anonymously.

Examine what the environment is like. Are the people engaging? Are they happy? Is conversation happening? Is the physical environment bright or dark and damp?

This may sound superficial, but intricate details like this significantly affect cultural fit.

If your company is bright, cheerful and collaborative and you acquire a combative, dark partner, you’ve got real challenges.

Navigating the M&A Aftermath

Post M&A, all executive teams conduct a post-mortem. Teams want to understand what went well, what worked – and what didn’t.

Often, issues related to systems and technology dominate. And they cannot be ignored. Employees not getting paychecks or benefits can cause a host of problems.

But it’s critical that you examine the people, emotions and cultural fit. Understand the risks, the opportunities – and identify the factors you did not consider.

Losing key people can torpedo any post-merger integration, according to Bain & Company. Many companies wait too long to put new organizational structures and leadership in place, which can result in the loss of talented executives. Act quickly to retain key talent and ensure a smooth transition.

Encouraging feedback from key team members, especially those below the executive level, can be beneficial. Conduct those 30-, 60- and 90-day check-ins. And don’t forget to reach out to the rank and file.

Neglecting to address these cultural issues can significantly impact how people feel about the new environment. Bain & Company note that this can damage morale and productivity, ultimately undermining the success of the merger.

People Will Command Your Attention

The human element is essential for a successful integration. But many executive teams are naïve about how key cultural factors are to an M&A deal.

It takes a great deal of thought to understand culture, people and talent. You’re not going to make everyone happy. That is not the goal.

The goal is understanding from a people perspective how people will respond – clients and employees alike. What opportunities and risks will the M&A create? And where do you need to place your intention and attention?

What cultural issues have you discovered in the aftermath of M&A deals? I welcome your insights and look forward to engaging in more in-depth discussions. Contact me at sdabbs@tompkinsventures.com. Let’s make your next deal a cultural and profitable success!

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